Fundamentals of Corporate Finance
11th Edition
ISBN: 9780077861704
Author: Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Bradford D Jordan Professor
Publisher: McGraw-Hill Education
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Chapter 18, Problem 5CRCT
Operating and Cash Cycles [LO1] Is it possible for a firm’s cash cycle to be longer than its operating cycle? Explain why or why not.
Use the following information to answer Questions 6–10: Last month, BlueSky Airline announced that it would stretch out its bill payments to 45 days from 30 days. The reason given was that the company wanted to “control costs and optimize cash flow.” The increased payables period will be in effect for all of the company’s 4,000 suppliers.
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2.[EXCEL] Cash conversion cycle: Northern Manufacturing Company management found that during the last year it took an average of 47 days to pay its suppliers, whereas it took 63 days to collect its receivables. The company's days' sales in inventory was 49 days. What was Northern's cash conversion cycle?
1. [EXCEL] Cash conversion cycle: Wolfgang's Masonry management estimates that it takes the company 27 days on average to pay its suppliers. Management also knows that the company has days' sales in inventory of 64 days and days' sales outstanding of 32 days. How does Wolfgang's cash conversion cycle compare with the industry average of 75 days?
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Chapter 18 Solutions
Fundamentals of Corporate Finance
Ch. 18.1 - What is the difference between net working capital...Ch. 18.1 - Prob. 18.1BCQCh. 18.1 - List five potential sources of cash.Ch. 18.1 - Prob. 18.1DCQCh. 18.2 - Prob. 18.2ACQCh. 18.2 - Prob. 18.2BCQCh. 18.2 - Prob. 18.2CCQCh. 18.3 - What keeps the real world from being an ideal one...Ch. 18.3 - What considerations determine the optimal size of...Ch. 18.3 - Prob. 18.3CCQ
Ch. 18.4 - Prob. 18.4ACQCh. 18.4 - Prob. 18.4BCQCh. 18.5 - Prob. 18.5ACQCh. 18.5 - Describe two types of secured loans.Ch. 18.6 - Prob. 18.6ACQCh. 18.6 - In Table 18.6, what would happen to Fun Toys...Ch. 18 - Prob. 18.1CTFCh. 18 - A firm has an operating cycle of 64 days and a...Ch. 18 - Prob. 18.4CTFCh. 18 - Prob. 18.5CTFCh. 18 - Operating Cycle [LO1] What are some of the...Ch. 18 - Prob. 2CRCTCh. 18 - Prob. 3CRCTCh. 18 - Cost of Current Assets [LO2] Loftis Manufacturing,...Ch. 18 - Operating and Cash Cycles [LO1] Is it possible for...Ch. 18 - Use the following information to answer Questions...Ch. 18 - Use the following information to answer Questions...Ch. 18 - Prob. 8CRCTCh. 18 - Use the following information to answer Questions...Ch. 18 - Use the following information to answer Questions...Ch. 18 - Changes in the Cash Account [LO4] Indicate the...Ch. 18 - Prob. 2QPCh. 18 - Changes in the Operating Cycle [LO1] Indicate the...Ch. 18 - Prob. 4QPCh. 18 - Calculating Cash Collections [LO3] The Morning...Ch. 18 - Prob. 6QPCh. 18 - Prob. 7QPCh. 18 - Calculating Payments [LO3] Sedman, Corp., has...Ch. 18 - Calculating Payments [LO3] The Torrey Pine...Ch. 18 - Calculating Cash Collections [LO3] The following...Ch. 18 - Calculating the Cash Budget [LO3] Here are some...Ch. 18 - Prob. 12QPCh. 18 - Prob. 13QPCh. 18 - Prob. 14QPCh. 18 - Calculating the Cash Budget [LO3] Wildcat, Inc.,...Ch. 18 - Prob. 16QPCh. 18 - Costs of Borrowing [LO3] In exchange for a 400...Ch. 18 - Prob. 18QPCh. 18 - Prob. 1MCh. 18 - Prob. 2MCh. 18 - Prob. 3M
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- 2arrow_forwardLast month, Bluesky announced that it would stretch out its bill payments from 30days to 45days. The reason given was that the company wanted to “control costs and optimize cash flow”. The increased payables will be in effect for all of the company’s 4,000 suppliers. a). Why don’t all firms simply increase their payables period to shorten their cash cycles? b). Bluesky lengthened its payables period to “control costs and optimize cash flow”. Exactly what is the cash benefit to Bluesky from this change?arrow_forwardA firm with a cash conversion cycle of 40 days can stretch its average payment period from 15 days to 20 days. This will result in a/an ... O a. decrease of 20 days in the cash conversion cycle. b. decrease of 5 days in the cash conversion cycle. increase of 5 days in the cash conversion cycle. X Od. increase of 20 days in the cash conversion cycle. C. Which of the following inarrow_forward
- 3arrow_forward3. Show solution in good accounting formarrow_forwardChoose the correct letter and provide solution A firm has total annual sales (all credit) of P100,000.00 and accounts receivable of P20,000.00. How rapidly (in how many days) must accounts receivable be collected if management wants to reduce the accounts receivable to P15,000.00? *a. 22.8 daysb. 34.8 daysc. 44.8 daysd. 52.8 dayse. 54.8 daysarrow_forward
- Problem 3. Regent Rug Repair Company is trying to decide whether it should relax its credit standards. The firm repairs rugs per year at an average price of each. Bad debt expenses are of sales, the average collection period is days, and the variable cost per unit is . Regent expects that if it does relax its credit standards, the average collection period will increase to days and that bad debts will increase to of sales. Sales will increase by repairs per year. If the firm has a required rate of return on equal-risk investments of , what recommendation would you give the firm? Use your analysis to justify your answer (use a 365-day year)arrow_forwardPlease help me with this question thankuuuuu pleasearrow_forward[EXCEL] Cash conversion cycle: Northern Manufacturing Company management found that during the last year it took an average of 47 days to pay its suppliers, whereas it took 63 days to collect its receivables. The company's days' sales in inventory was 49 days. What was Northern's cash conversion cycle? pleas use excel.arrow_forward
- A company with annual sales of $22,000,000 is considering changing its payment terms from net 40 to net 30 to encourage customers to pay more promptly. The company forecasts that customers would respond by paying on day 32 rather than day 44 as at present (assume a 360 day year) but would decrease their purchases by $400,000 per year. The company also forecasts that its idle cash balance would decrease by $80,000 and administrative costs would be reduced by $30,000 per year. The company's variable costs average 62% of sales, it is in the 35% marginal tax bracket, and it has an 8% cost of capital. Part A: Calculate the incremental cash flows from accepting this proposal, and organize your cash flows into a cash flow spreadsheet. Part B: Calculate the proposal's NPV, IRR, and NAB. Part C: Should the company shorten its payment terms?arrow_forwardA company with annual sales of $22,000,000 is considering changing its payment terms from net 40 to net 30 to encourage customers to pay more promptly. The company forecasts that customers would respond by paying on day 32 rather than day 44 as at present (assume a 360 day year) but would decrease their purchases by $400,000 per year. The company also forecasts that its idle cash balance would decrease by $80,000 and administrative costs would be reduced by $30,000 per year. The company's variable costs average 62% of sales, it is in the 35% marginal tax bracket, and it has an 8% cost of capital. Part A: Calculate the incremental cash flows from accepting this proposal, and organize your cash flows from part A into a cash flow spreadsheet. Part B: Calculate the proposal's NPV, IRR, and NAB. Part C: Should the company shorten its payment terms?arrow_forwardThe Branson Corporation is considering a change in its cash-only policy. The new terms would be net one period. The required return is 2.5 percent per period. Price per unit Cost per unit Unit sales per month Current Policy $59 $33 2,450 Break-even quantity New Policy $61 $33 ? What is the break-even quantity for the new credit policy? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)arrow_forward
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